Recent Articles

Comments from “Plugged-In” Readers

Can someone explain who pays to subsidize the BMR units? Is it subsidized wholly by the other residents of that building, by the taxpayers in general, or…? How much more do the market rate units costs due to the BMRs?

BMR are the extraction the City makes on the developer 10% of the units must be affordable either under the Mayor’s housing program or Redevelopment agency. The BMR buyer contribute the full HOA and pay taxes on the reduced rate unit. So the buyers in the building are not subsidizing the BMR’s in their units. How much does this type of program contibute to overall cost to the Market Rate buyer. who knows? I would say the developers have factored it in as the cost of doing business in SF.

My guess is that the developer simply passes on the cost of the BMR units to the buyers of the market-rate units, or at least to the extent the market will bear. Why would the developer eat the cost, if the buyers are willing to do so? That’s a subsidy by my book.

Doing some simple math, let’s say there are 10 market rate units at $1,119,000 and 1 BMR unit at $202,590. The developer then receives $11,392,590. To earn the same amount, with all units at the same market rate, each unit would cost this figure divided by 11, or $1,035,962, which is $83,037 less (7.4%) than the current market rate. As you say, the BMR cost is spread through the city, but this seems like a reasonable calculation. Also, with no BMRs, the developer might just charge 1,119,000 per unit and make more money if he could get it!

We need to quit talking about “affordable housing” when what we really mean is subsidised housing. Traditionally, for buildings of 10 or more units a builder has had to give up 10% of the building as BMR’s. This has recently changed to 15% for 5 or more units, but that is not all!! The City has just started to hit builders with other “in-lieu” fees such as $13 per Sq/ft for residential units. This means that a Builder doing a 24 unit building of 30,000 sq/ft would have to give up four units to the City and now also have to pay an additional $390,000 on top of everything else which is already enormous. The net effect of all of this is that we will have less construction and much higher prices. If you think that housing here is expensive now, stick around for another 10 years!!

Good points. Put another way, the net effect is less “affordable” housing for average wage earners, since the BMR’s are reserved for buyers who earn considerably less than the median income and the cost of the market-rate units is inflated. Net result: more housing at the extremes of the market, and less in the middle.

Exactly. One other thing on the so called “affordable housing”. It is actually among the most expensive housing being built with costs between 500-750 sq ft. Enormous public subsidy’s does not make this housing “affordable”.

Of course the costs of BMRs are borne by “somebody”, and that somebody is the middle class and “outsiders” moving to the Bay Area. If there is not a more market neutral change, eventaully the middle class will be missing from SF. That’s not bad if you: 1. want to live in a city with that demographic, 2. have enough money to pay much more than mostly everywhere else 3. are not operating a business dependant on skilled but modestly payed workers (bookstores, ect)
BTW, how does a BMR pay the “usual” HOA? And what happens to the HOA if they default?
Cary

I never understood how it is we’re supposed to build “affordable” housing on extremely expensive land that will continue to appreciate no matter what. Seriously. And I also don’t see how building lots of luxury housing stock is going to reduce prices (the supply and demand theory). We could build tons of new housing, but if it’s all 1 million+ and the land it is built on continues to appreciate, how does it get “cheaper?”
I also wonder how affordable a market rate unit in a luxury building really is, given that the HOA dues are probably going to be quite high. Seems kinda dumb to offer someone a below market rate cost unit only to see them get wiped out with fees they can’t afford or live in a building that is not really compatible with their needs.
Anyone with a better idea, please! Speak up!

It appears that BMR HOA fees are factored into the total cost of housing. In other words, the after-tax outlay for the total housing cost generally won’t exceed 30% of income. HOA for this project is $600 a month and the units are priced low at $202K level. Other BMR units in the city carry an average HOA fee in the range of $300-$400 a month but the unit prices are $250-$270K.

We might also recommend purusing some of our reader’s comments on our recent Transbay Citizens Advisory Committee Housing Presentation post. For example:
“The HOA dues, it turns out, are not a big problem [for the BMR buyer]. I have just learned that all a homeowner’s association can do if you are delinquent with your dues is put a lien on your property. And the ability to add fines on top of the delinquent dues is pretty limited. I’m sure most BMR owners pay their dues, but if they get behind it’s not like getting behind with the rent.”
Of course if it’s not a big problem for the buyer it could be a problem for the HOA.

An important point to remember in the affordable/luxury dichotomy is that the real cost of a structure is in the land,financing, holding and structural cost. Those finishing upgrades that make a building “luxury” is very small if you take it as a percentage of the overall cost. People that call for “affordable” housing versus “luxury” clearly do not think of this. Steel,concrete, lumber, wages and interest rates are the some whether you are Pacific hts or Hunters point.

Mark & Greg,
Mark: I read Carol Lloyd’s piece. I guess HOA fees can be significant and a problem.
Greg: I don’t pretend to how to solve the problem of affordable housing but some possible solutions follow. In most of the country, rent control doesn’t exist and affordable housing, while still an issue, is more readily available. Rent control should end. This would make pricing more efficient, improve the housing stock,and, ultimately, increase supply. Zoning laws should be liberalized and density encouraged in “appropriate areas”. Again, this would increase supply. The construction code and the whole process should be overhauled so construction completion wouldn’t take the one to two years it currently takes. I’ve heard anecdotally neighbors can and do hold up projects for things that are not even zoning issues. That’s expensive and unfair.
I must repeat, I don’t know, for sure, if my three suggestions would alleviate the chronic shortage of affordable housing in the Bay Area. It’s entirely possible one of the most beautiful cities in America will still wind up the refuge of the wealthy. In America you have to pay for the finest things in life. Unfortunately, or fortunately, depending on your point of view, San Francisco is not immune from the laws of economics.
Cary

Well, I purchased one of the market price 2BR 2BTH unit on 3208 Pierce Street, and paid approximately $1.2+ million for it. To be honest, I am not too happy about the BMR unit. I think there are better ways to solve the Affordable Housing problem, but the BMR unit isn’t exactly the best way.
For the BMR unit owner, its not “exactly” affordable housing anyways. He or she will have to go through a lottery process — meaning, it is like winning the lottery to get the BMR unit. He or she will still have to be responsible for the $600+ monthly HOA. In addition, he or she will not be able to sell the unit … unless it is back to the city for a low price. And if you break down the monthly payment, the BMR unit works out to be just about the same as renting at the end of the day.
A better method would be to ask developers to contribute to a fund for each new unit they build in the city, and the city should then use such funds to build more affordable rental units in the city. This would solve the “affordable housing” problem. Affordable housing should be solved by providing more affordable rental units in the city for the minimum wage workers and not by providing very few affordable home ownership … in a city for the very few minimum wage workers, while cutting out the middle class. In the end, I think everyone is right, home prices will continue to rise, and the city’s BMR program will only help housing price increase even more. I won’t be surprised if the $1.2 million unit I paid for could be resold for $2 million in less than 10 years time.

170 BMR units with 54 market rate! I can only imagine the great times ahead for the market rate buyers in this building! The HOA meetings are going to be a lot of fun. I will not be showing my clients this building, but I will be sure to point it out to them and let them know what is going on there.